What Marx got right

Marx foresaw the great contradiction of capitalism. This is the first of a two-part op-ed

Whether communist revolutions ever succeed or not, Karl Marx, whose birth bicentennial was celebrated this May, will remain one of the most influential thinkers of modern age.

Marx is one of the very rare thinkers in history who can claim to have changed the history of the world. In this two-part op-ed, I will discuss two big strands of Marxist thought, one where I think Marx was prophetically right and one where he was very wrong. I am not an expert on Marxism, but one encounters Marx in almost every corner in studying social sciences.

A keen reader of classical economists like Adam Smith, David Ricardo, etc, Marx was one of the first people to grasp the all-conquering nature of capitalist market economy powered by a relentless drive for profit.

Survival, not greed, is the main reason why businesses in a market economy must continuously seek profit. In the previous feudal and closed economy, buyers had little choice than to buy from the local shoemaker, baker, or tailor at the price charged by producer. In a market economy, business must compete in price and in this Darwinian marketplace, generally bigger businesses with more capital that uses division of labour more efficiently outcompetes other businesses.

Marx argued that the value of a product in the market reflects two inputs, the amount of capital used (which include machinery, facilities, and monetary resources) and the amount of human labour.

According to Marx, capital does not create new value in production, the amount businesses pay to acquire capital is same as the value it adds to product. While value of labour is the full amount of labour used to produce, businesses pay labourers only living wages, far less than the value they create. That is why Marx argued that only human labour is the source of profit for business, obtaining greater value than amount paid.

This is the famous “surplus value” popularized by Marx. According to him, the basis of capitalism is exploitation of labour to accumulate surplus value that can be transformed into capital to further expand business to survive in the Darwinian economy.

Businesses can obtain greater surplus value in two ways, pay labour less or make labour more efficient in producing value. Capitalist market economy already pays labour the minimum labour market price, thus the main recourse is to make labour more efficient, obtain better technology, and standardize labour so that it can work better with technology.

Standardization and eventual commodification of labour is one of the great insights of Marx. Although Adam Smith articulated division of labour in his works, it was Marx who grasped the power and horror of labour commodification.

Previously, one or two cobblers in a workshop produced one or two pairs of shoes a day. Capitalism makes hundreds of workers, each doing nothing more than putting few stitches or pressing a handle, produce thousands of shoes a day.

Previously, each shoe was a personal product of a worker, his handiwork, his creation of value in the world. Now, labour is just like a commodity, any worker can be replaced with another to do standardized work, there is no personal connection of the worker with the product.

Workers feel they too are just part of capital and machinery, going through automatized motion. As capitalism destroys the meaning people have traditionally derived from their work, it creates the very modern and pervasive human condition “alienation.”

Capital owners also do not escape from the mill of capitalism. They spend their time in constant quest for surplus value to accumulate capital lest their businesses fail, and they join the ranks of commoditized proletariat.

As capitalism converts more and more of human labour into market-priced commodities, it creates a great contradiction within. The few rich capital owners cannot buy mountains of products of capitalism, consumer demand of the working man keeps the economy humming. But in its quest for extracting surplus value, capitalism increasingly commoditizes and immiserates the working class, collapsing demand for the very products it produces. Overproduction and demand collapse create regular recessions in the economy, where excess capacity in the form of failed businesses are swept away, mergers and takeovers create even more formidable businesses.

Another direct effect of capitalist overproduction is the desperate quest for new markets, which leads to internationalization and then globalization. Marx wrote prophetically in The Communist Manifesto in 1848: “The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe … it must nestle everywhere, settle everywhere, establish connections everywhere.”

It must be said here that Marx did not get all or most things exactly right in his critique of capitalism. Particularly, his theory that only labour is the source of profit and surplus value is dismissed by almost all economists. Most economists agree that value resides in desirability of the product, not the amount of labour or capital that went into it.

However, Marx’s insights regarding capital accumulation, commodification of labour, alienation, economic cycles, globalization, and other basic features of current capitalistic world are simply astonishing.

That he envisioned this picture more than 150 years ago, when free trade, market economy were just theoretical concepts starting to get popularized, boggles the mind.

Just consider commodification of labour; all the biggest businesses of the world today are pursuing automatization of every human job imaginable using unlimited capital and best talents of the world.

Drivers, doctors, artists, accountants, soldiers, software developers, no human occupation is safe from standardization, commodification then automation. This is the great contradiction of capitalism that Marx foresaw, it seeks to eject the bulk of humanity from the very system that depends upon continuous increase in demand of human consumers.